Obtaining Cannabis Insurance Coverage: What Plant-Touching Businesses Can Expect
Risk management is important for any business let alone a startup in a developing industry, but it takes on a whole new meaning for cannabis companies looking to make their mark on the burgeoning cannabis market. As more and more states go green and join the mounting number of sovereigns that permit, tax, and regulate medical and adult-use marijuana, the need for cannabis related banking, insurance, and real estate continues to grow.
As any cannabis entrepreneur and operator knows, the business is risky, capital intensive, and presents many unforeseen challenges. Proper and adequate insurance coverage and risk management is therefore paramount in such an uncertain, undulating industry.
Success favors the well prepared. It would behoove those looking to enter the legal cannabis marketplace to work with attorneys and insurance brokers who are familiar with the particulars of available insurance coverage and the idiosyncratic needs and risks of the cannabis business, whether it be a grow operation, a processing facility, or a retail dispensary.
Common coverages such as products liability, commercial general liability, property, and errors and omissions exist for cannabis insureds, however, they come in all different types, shapes, forms, and effects. Horror stories abound about carriers issuing high premium insurance policies to cannabis producers and distributors that through the fine print and labyrinthine endorsements and exclusions do not provide coverage for vital components of the operation such as crops, machinery, and goods in transit.
Therefore, it is critical to understand the extent and scope of the offered insurance coverage as well as to develop and implement a risk assessment and management plan to identify potential risks and to minimize losses.
Holly DeLorenzo, a Senior Business Insurance Broker with the Hardenbergh Insurance Group (“HIG”), specializes in placing insurance coverage for licensed operators as well as procuring coverage for those applying for licenses and those who provide goods and services to plant-touching businesses in New Jersey, Pennsylvania, and New York.
“Products liability coverage can be very expensive for newly established operators with no track record,” according to Ms. DeLorenzo who has placed encompassing coverage for one of the six vertically integrated Alternate Treatment Centers in New Jersey as well as for three hopeful applicants waiting for the NJ Department of Health’s decision on the latest round of license applications.
“There are carriers and providers out there that will write comprehensive ‘seed to sale’ insurance packages for licensed operators,” says DeLorenzo who indicated that an insurance package for a vertically integrated operation can be pricey.
What makes the Hardenbergh Insurance Group different than other insurance brokers is their focus on risk management services and recommendations as part of the overall insurance package and strategy. “We learn the client’s business and the particular risks associated with that business in order to assess weaknesses and to make recommendations about improvements that can result in lower premiums and less exposure,” says DeLorenzo referring to HIG as “not your typical insurance agents.”
Different businesses in different states have varying insurance needs and can have widely different goals and abilities to manage fluctuating degrees of risk attendant to their respective businesses. Therefore, DeLorenzo does not take a “one-size fits all” approach, but rather carefully picks and chooses coverages from primary, excess, and surplus line carriers that will give clients the most comprehensive, practical coverage available for their specific business and target markets.
Be prepared to provide a lot of detailed information about your business, your financials, your real estate, and your team. Cannabis insurance applications are grueling, lengthy, and require meticulous attention to detail and transparency. The more accurate information and details you provide, the less wiggle room the carrier will have to disclaim coverage for any potential misstatements, misrepresentations, and material omissions in the application.
For growers and producers, having a rigorous testing program or a testing lab partner/vendor are important factors that impact the underwriting process. Likewise, security, documentation, and employee training will be important considerations for insuring dispensaries.
Obtaining insurance coverage is only half of the battle: putting that insurance to work or obtaining the benefits of that insurance in the event of a claim or loss is the other half. With the dichotomy of federal and state law, the increase in coverage dispute case law in more mature markets such as California, Colorado, and Oregon, and the scarcity of cannabis “experts,” cannabis related insurance claims and liability suits are rather complex and protracted.